CABOT CREDIT MANAGEMENT Financial Results
For the year ended 31 December 2018
28 February 2019
Financial Results For the year ended 31 December 2018 28 February - - PowerPoint PPT Presentation
CABOT CREDIT MANAGEMENT Financial Results For the year ended 31 December 2018 28 February 2019 DISCLAIMER This presentation has been prepared by Cabot Credit Management (the Company) solely for informational purposes. For the purposes of
28 February 2019
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This presentation has been prepared by Cabot Credit Management (“the Company”) solely for informational purposes. For the purposes of this disclaimer, the presentation that follows shall mean and include the slides that follow, the oral presentation of the slides by the Company or any person on their behalf, any question-and-answer session that follows the oral presentation, hard copies of this document and any materials distributed in connection with the
the presentation, you will be deemed to have agreed to all of the restrictions that apply with regard to the presentation and acknowledged that you understand the legal and regulatory sanctions attached to the misuse, disclosure or improper circulation of the presentation. The Company has included non-IFRS financial measures in this presentation. These measurements may not be comparable to those of other companies. Reference to these non-IFRS financial measures should be considered in addition to IFRS financial measures, but should not be considered a substitute for results that are presented in accordance with IFRS. The information contained in this presentation has not been subject to any independent audit or review. A significant portion of the information contained in this document, including all market data and trend information, is based on estimates or expectations of the Company, and there can be no assurance that these estimates or expectations are or will prove to be accurate. Our internal estimates have not been verified by an external expert, and we cannot guarantee that a third party using different methods to assemble, analyze or compute market information and data would obtain or generate the same
publications, public documents of our competitors or other external sources. Further, our competitors may define our and their markets differently than we
factors which are subject to uncertainty. Certain statements contained in this document that are not statements of historical fact, including, without limitation, any statements preceded by, followed by or including the words “targets,” “believes,” “expects,” “aims,” “intends,” “may,” “anticipates,” “would,” “could” or similar expressions or the negative thereof, constitute forward-looking statements, notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute forward-looking statements. Examples of forward-looking statements include, but are not limited to: (i) statements about future financial and
acquisitions, projected levels of production, projected costs and projected levels of revenues and profits of the Company or its management or board of directors; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict and outside of the control of the management of the Company. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. We have based these assumptions on information currently available to us, if any one or more of these assumptions turn out to be incorrect, actual market results may differ from those predicted. While we do not know what impact any such differences may have on our business, if there are such differences, our future results of operations and financial condition, and the market price of the notes, could be materially adversely affected. You should not place undue reliance on these forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements referenced
undertaking to disseminate any updates or revisions to any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events. The presentation does not constitute or form part of, and should not be construed as, an offer to sell or issue, or the solicitation of an offer to purchase, subscribe to or acquire the Company or the Company’s securities, or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation is not for publication, release or distribution..
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Managing Director – Credit Cards Managing Director – UK and S.Africa Head of European Operations PricewaterhouseCoopers Managing Director – Audit, Europe and Asia CFO – Italy Controller – UK Bank
Chief Financial Officer
Chief Executive Officer
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growth across Europe
Accounting standards and ECB direction to Banks dictating increased provisioning of NPLs Creditor organisations recognising Cabot and others’ expertise (collections, customer conduct, GDPR)
indebtedness
signs that this will lead to improvement in pricing conditions
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DP Collections
(2017: £407.5m)
+11%
Servicing revenues
(2017: £40.2m)
+104%
Adjusted EBITDA
(2017: £295.2)
+18%
Leverage
(2017: 4.2x )
120-Month ERC
(2017: £2.4bn)
Portfolio acquisitions
(2017: £321.5m)
+13% +4%
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Capital deployment at consistent MM (1.9x) Leverage lower at 4.1x Proactively managing our liquidity profile
Collections remain in line with our ERC forecast UK back book performance stable (average 880k regular payers, average monthly payment £25) Executing on committed cost savings initiatives – completion of UK site rationalisation project Adjusted EBTIDA grew by 18% at strong margin (63.5%) Generated £70m of free cash flow after maintenance ERC
Winner of Best Use of Technology and Best Law Firm at 2018 Credit Excellence awards ISO 27001 re-certification validates continued investment in Information Security Received Gold accreditation from Investors In People Strong UK Customer Satisfaction Index rating (84) Industry leading FOS uphold rates (15%), less than half UK Financial Services average Successfully implemented changes needed to ensure compliance with GDPR
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2.0 3.0 3.1 3.5 4.5 5.1 Largest Debt Purchaser Globally (ERC in £bn)
Source: Company filings. Note: ERC and Total Net Debt / Adjusted EBITDA translated as spot rate as of last date all parties reported which is either Q3 or Q4 2018 for every company as at 27 February 2019 Note: Encore leverage calculated as Total Debt/(Adjusted EBITDA + Collections Applied to Principal Balance). 2 3
Deeply Embedded in Key Markets
2.2x 2.9x 4.1x 4.2x 4.3x 4.6x 5.3x
Includes 100% of Cabot Strong Balance Sheet (Total Net Debt / Adjusted EBITDA) 5.5
Reach 1/5 consumers Reach 1/8 consumers
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359 408 454 209 299 458 568 706 912 2016 2017 2018 DP Collections Servicing Collections (£’m) 244 272 299 26 40 82 270 315 393 2016 2017 2018 DP Revenue Servicing Revenue Other Revenue (£’m)
29% growth in total collections 25% increase in revenue
21% 76% 10% 90% +29% 13% 86% +25% 50%
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10.7% 10.6% 10.1% 24.8% 23.9% 26.5% 35.5% 34.5% 36.5% 2016 2017 2018 Recurring other opex (excl. D&A) Collection activity costs 41 48 55 96 108 146 137 155 201 2016 2017 2018 Recurring other opex (excl. D&A) Collection activity costs (£’m)
Total Gross Revenue:
Evolution of cost base (£m)
Evolution of cost ratios (%)
384 450 551
(1) Recurring costs, adjusted to add back the effects of depreciation of property, plant and equipment, amortisation of intangibles, share based payments and net book value of assets sold
(1)
Servicing as %
10% 13% 21% DP 21% Servicing 59%
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Adjusted EBITDA
driven by disciplined capital deployment and operational efficiencies
reducing leverage to 4.1x
following Wescot acquisition in Q4’17.
from change in business mix – operational efficiency measures have reduced this impact by half
Servicing as %
10% 13% 21% 248 295 350 64.5% 65.5% 63.5% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0% 75.0% 80.0%
20,000 70,000 120,000 170,000 220,000 270,000 320,000 370,000
2016 2017 2018 Adjusted EBITDA Adj EBITDA Margin (£’m)
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2,086 2,370 2,680 2016 2017 2018 (£’m) 27 30 13 58 25 37 20 79 28 58 18 67 50 110 86 87 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Paying Non-Paying Secured (£’m)
76% 24%
FY 2017 - £321m
UK Europe 62% 38%
FY 2018 £333m
UK Europe
Capital deployed by geography 120 month ERC growth Capital deployed – LTM £333m
+13%
120m ERC by region
UK, 79% Europe, 21%
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2.1x 2.4x 2.2x 2.2x 2.1x 1.7x 1.9x 2.1x 1.8x 1.9x 0.6x 1.1x 0.9x 1.2x 0.7x 0.7x 0.5x 0.7x 0.3x 0.3x
2.7x 3.4x 3.1x 3.4x 2.7x 2.4x 2.4x 2.7x 2.0x 2.1x 2.0x
'05-'09 2010 2011 2012 2013 2014 2015 2016 2017 2018 120 GMM @ Pricing Lifetime GMM @ 31-Dec-18
(1) Reflects underlying portfolios from acquired businesses in the year in which they were originated by the acquired business (2) 2018 excludes secured purchases which reflect £22m spend. Blended MM including secured deployment in 2018 would be 1.83x (3) Lifetime GMM reflects actual collections to date plus estimated collections over next 180 months.
Lifetime vs. Pricing 120 month gross money multiple by vintage (31-Dec-18)
(2)
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(3)
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66% 36% 39% 2016 2017 2018 34% 64% 61% 2016 2017 2018 2.2 2.2 2.1 2016 2017 2018 1.6 1.6 1.7 2016 2017 2018
Paying Portfolios Non-Paying Portfolios
UK 120 month gross money multiples UK capital deployed by portfolio type
UK 120 Month Money Multiples: 1.85x 1.84x
2.01x
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£3.1bn
2017 2018 Change Adj EBITDA 295 350 55 Annualised cash interest (77) (81) (4) 40 Annualised capex and tax (11) (21) (10) ERC replenishment rate (149) (178) (29) Excess cash generation 58 70 12
Performance against ERC forecast published 12 months prior to the date shown
Distribution of 180m Gross ERC by period as of 31-Dec-2018 Consistent collection outperformance
£2.7bn
120 month ERC 180 month ERC
Growth in cash margins exceeds growth in ERC replenishment rate
based on EBITDA growth (up 18%)
467 420 360 306 262 228 197 169 146 124 97 87 77 69 63 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 (£’m) 104% 103% 102% 100% 101% Q417 Q118 Q218 Q318 Q418
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ERC projections
Cumulative collections performance (to the end of 2018) against historic ERC forecasts
123% 102% 102% 101% Vs ERC at Dec 14 Vs ERC at Dec 15 Vs ERC at Dec 16 Vs ERC at Dec 17
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10 81 178 350 248 70
2018 Adj EBITDA Capex Cash taxes Cash interest Free Cash Flow ERC replenishment rate Excess cash generation
(£’m)
1 2 (1) Per cash flow statement (2) Per note 27 of financial statements (3) Cash interest based year end weighted average cost of debt 5.7% applied against period end net debt £1,417m (4) Average of December 2017 and December 2018. ERC replenishment rate calculated as Year 1 collections less Year 11 collections, divided by average 120 month Money Multiple (2.0x) see page 14 3 4
Cash flow waterfall is not a GAAP measure, but it can be sense checked against GAAP disclosures:
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Net debt as of Dec 31 2018 (£m)
(1) £385m RCF less drawn amount of £233.9m plus cash available of £44.3m
Bonds 872 ABL 350 RCF and other loans 239 Cash available (44) Net Debt 1,417 84 months ERC 2,241 LTM Adjusted EBITDA 350 LTV 63% FCCR 4.2x Net Debt / Adjusted EBITDA 4.1x
business
Reduced leverage to 4.1x vs. 4.2x in Q4 2017 Lowering LTV: 63% vs. 65% in Q4 2017 Strengthened FCCR to 4.2x vs. 3.4x in Q4 2017
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every customer to achieve their own financial recovery
across the two largest global markets – UK and US. Leverage this scale and expertise to maintain our competitive advantage, drive customer and compliance leadership, & maximise our financial strength
revenue streams, whilst further strengthening existing client relationships
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Reconciliation of 2018 IFRS Reported Net Income
* Non-recurring items are those items or income or cost that that by virtue of either their size or nature, are not considered part of the underlying performance of the business. Refer appendix 2 for more details
ECONOMIC P&L £m Total Non- recurring * Underlying Guide Collections on owned loan portfolios 453.5
(a) Servicing revenue 82.0
(b) Other income 15.5
(c) Gross revenue 551.0
(d) Recurring opex (excl. D&A) (201.2)
(e) Adj EBITDA 349.8
(f) Share-based payment (3.6) (1.8) (1.8) (g) Book value of portfolio assets sold (3.1)
(h) Book value of REO assets sold (4.8)
(i) Non-recurring opex 1.4 1.4
Amortisation (210.7)
(k) Positive impairment of portfolio investments 56.2
(l) D&A (12.9) (5.0) (7.9) (m) Operating Profit 172.3 (5.4) 177.7 (n) Finance income 1.5 (0.6) 2.1 (o) Finance costs (103.2) (14.1) (89.1) (p) PBT 70.6 (20.1) 90.7 (q) Tax (11.7) 3.3 (15.0) (r) Net income 58.9 (16.8) 75.7 (s)
IFRS P&L
£m Reported Non- recurring * Underlying Guide Income on owned portfolios 242.8
(a) + (k) Positive impairment of portfolio investments 56.2
(l) Servicing revenue 82.0
(b) Other income 12.4
(c) + (h) Revenue 393.4
Recurring opex (excl. D&A) (201.2)
(e) Share-based payment (3.6) (1.8) (1.8) (g) Book value of REO assets sold (4.8)
(i) D&A (12.9) (5.0) (7.9) (m) Non-recurring opex 1.4 1.4
Operating Profit 172.3 (5.4) 177.7 (n) Finance income 1.5 (0.6) 2.1 (o) Finance costs (103.2) (14.1) (89.1) (p) PBT 70.6 (20.1) 90.7 (q) Taxes (11.7) 3.3 (15.0) (r) Net income 58.9 (16.8) 75.7 (s)
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FY 2018 (Unaudited) £m FY 2017 (Unaudited) £m Profit after tax 58.9 35.3 Add back:
Restructuring costs (6.3) 14.1 Settlement of legal dispute
Other non-recurring operating expenses 6.7 11.7
Total Non-recurring operating expenses 0.4 28.7
Release of unamortised fair value adjustment
Refinancing 14.1 8.7
Total Non-recurring finance costs 14.1 (2.6)
Net loss/(gain) on derivative instrument 0.1 (1.5) Foreign exchange gains 0.5 1.4 Amortisation on acquired intangibles 5.0 1.9
Total Non-recurring items 20.1 27.9
Tax effect of above (3.3) (5.4)
Underlying profit after tax 75.7 57.8
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80 280 10 513 350 370 224 863 2019 2020 2021 2022 2023 2021 SSN 2021 € SSFRN RCF 2023 SSN ABL
Debt Structure as at Dec-18 Debt Maturity Profile as at Dec-18 (£m)
Instrument Face Value Interest Rate Maturity Date Current Redemption Price Next Call Date Next Redemption Price Bonds 2021 Senior Secured Note £80.0m 6.50% 01-Apr-21 101.625% 01-Apr-19 100.000% 2021 € Senior Secured Floating Rate Note £279.5m E+5.875% 15-Nov-21 101.000% 15-Nov-19 100.000% 2023 Senior Secured Note £512.9m 7.50% 05-Oct-23
103.750% Bank Debt Revolving credit facility £233.9m L+3.00% 24-Sep-21 / 31-Mar-22
Asset backed lending facility £350.0m L+3.00% 03-Sep-23
Weighted average cost of debt
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(a) (b) (c) = (a) - (b) Year 1 Collections Year 11 Collections Net ERC decrease 31-Dec-18 467 97 370 31-Dec-17 426 84 342 Average net ERC decrease 356 (d) Avg 120 month MM 2.0x e ERC replenishment rate 178 (d) / e
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Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7
Dec 2014 ERC forecast vs actuals Dec 2015 ERC forecast vs actuals Dec 2016 ERC forecast vs actuals Dec 2017 ERC forecast vs actuals
Cumulative performance: 123% Cumulative performance: 102% Cumulative performance: 102% Cumulative performance: 101%
101% 99% 104% 100% 103% 104% 119% 123% 125% 126%
ERC forecast collections as at date shown Actual collections against static pool
(In £'m) 84 Month ERC To end 2018 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 ERC @ Dec 14 1,300 866 263 227 199 177 158 144 132 Actual collections - £'m 1,063 313 279 249 222 Performance (%) 123% 119% 123% 125% 126% ERC @ Dec 15 1,584 857 330 283 244 213 189 171 155 Actual collections - £'m 874 329 291 255 Performance (%) 102% 100% 103% 104% ERC @ Dec 16 1,708 662 348 315 274 236 204 175 157 Actual collections - £'m 674 363 311 Performance (%) 102% 104% 99% ERC @ Dec 17 1,985 426 426 368 310 272 233 202 175 Actual collections - £'m 431 431 Performance (%) 101% 101% Expected to be collected in ->
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0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% £0.0 £0.5 £1.0 £1.5 £2.0 £2.5 £3.0 £3.5 £4.0 £4.5
2005 2006 2007 2008 2009 2010 2011 2012 2013
2005 2006 2007 UK unemployment rate
Source: Company information. Office of National Statistics.
Monthly Historical Collections for Pre-crisis Vintages1
Monthly collections (£m) UK unemployment rate
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120-Month ERC 120-Month ERC means the Group’s estimated remaining collections on purchased loan portfolios over a 120-month period, which represents the expected future gross cash collections on the Group’s purchased loan portfolios over a 120-month period Adjusted EBITDA Adjusted EBITDA is Operating Profit adjusted to add back the effects of current value movements on owned loan portfolios, depreciation of property, plant and equipment, amortisation of intangibles, share based payments, net book value of assets sold and non- recurring operating expenses Adjusted EBITDA margin Adjusted EBITDA divided by gross revenue CAGR Compound annual growth rate Capital deployed ‘Portfolio acquisitions’ Collection activity costs Collection activity costs consists of staff salaries and benefit costs, servicing fees, communication costs (including the cost of collection letters sent to customers, such as printing and postage costs), credit bureau data costs and legal costs directly associated with collection activity. Cost to collect ratio Ratio of collection activity costs as a percentage of ‘Gross revenue’ DP collections Amounts collected, including by agents on behalf of the Group, from customers on purchased loan portfolios ERC ERC means the Group’s estimated remaining collections on purchased loan portfolios over a defined period, which represents the expected future gross cash collections on the Group’s purchased loan portfolios over a defined monthly or annualised period ERC replenishment rate Average of two ERC forecasts. ERC replenishment rate calculated as Year 1 collections less Year 11 collections, divided by average 120 month Money Multiple (2.0x) FCCR Fixed Charge Coverage Ratio ‘FCCR’ is calculated as LTM Adjusted EBITDA/ Net Interest Expense Gross revenue ‘DP collections’ plus ‘Servicing revenues’ plus ‘Other income’ adjusted to add back the effect of net book value of assets sold Leverage Leverage is Net debt / LTM Adjusted EBITDA LTM Last twelve months LTV Loan to Value ‘LTV’ ratio is calculated as Net Debt/ 84 ERC Money multiples Money multiples are total expected gross cash collections divided by portfolio acquisition price Non-recurring items Items or income or cost that that by virtue of either their size or nature, are not considered part of the underlying performance of the
losses, the gain or loss on hedge instruments and amortisation of acquired intangibles Net revenue Revenue as reported in statutory accounts. Gross revenue less portfolio amortisation Portfolio acquisitions Portfolios purchased by the Group Servicing revenues Fees receivable and commissions from the servicing of loan portfolios on behalf of third parties, as recognised in the profit and loss account with respect to paying commissions accrued, inclusive of fees for other credit management services such as consultancy services, training, business process outsourcing and hosted IT systems provision